Investors slam Matalan bid

By James Hall

12:01AM BST 02 Jul 2006

A major shareholder organisation has launched a fierce attack on plans by John Hargreaves, the founder and chairman of Matalan, the listed discount retailer, to take the chain private following a falling out with the company's non-executive directors over the retailer's dividend policy.

Hargreaves put out a shock statement after the market closed on Friday saying that he is "working on a possible offer" for the company. Hargreaves, whose family owns a controlling 53 per cent stake in Matalan, also said that he had informed the board that his family would push for a dividend cut from next year.

The future dividend cut could send the shares crashing tomorrow morning when the market opens, meaning that any potential bidder would have to pay less for the company than it otherwise would.

The UK Shareholders Association (UKSA), which is backed by 1,500 private investors, condemned the move, saying that it is not in the best interest of shareholders. It urged them to bring it up at Matalan's shareholder meeting on Wednesday.

"Hargreaves should be acting in the best interests of all shareholders. This is not right. Minority shareholders can look at legal [action] for being exploited by a large concert party majority shareholder," said Gavin Palmer, a branch director at UKSA.

Meanwhile Hargreaves' aggressive stance on the company's dividend policy has pitted him on a collision course with Matalan's non-executive directors. Hargreaves said that Matalan's current dividend policy is "out of line" with comparable retailers and that his family would "not support" such a policy from next year.

The non-executive directors, who include Lord Harris of Peckham, the Carpetright founder, said that they "do not agree with this assessment".

"The board will continue to set what it believes are appropriate levels of dividend in the future... whilst accepting that the Hargreaves family has sufficient votes to block such a recommendation," the company said in a terse statement. This year the company plans to pay a total dividend of 8.5p, compared with earnings per share of 6.2p.

"Hargreaves has pressed the nuclear button," said one retail executive.

Hargreaves is believed to be in talks with a major UK bank to fund his bid. In the past he has worked closely with Barclays. Matalan has seen its shares more than half in the last five years to 169p.